Why public transport infrastructure projects need rigorous assessment

We can do better with the money we spend on transport projects if we evaluate proposals more critically.

By Marion Terrill

April 1, 2016 — 7.05pm

A good starting point for governments looking for ways to manage congestion and rush-hour gridlock in our major cities would be to choose those transport projects that will do most to fix the problem at the least cost. It sounds fairly simple. But as the Grattan Institute's new report, Roads to Riches, shows, too often politics trumps the public interest when it comes to investing in transport infrastructure.

Australian governments have spent unprecedented sums on transport infrastructure in the past decade, exceeding 1 per cent of GDP since 2009. But, mostly, they have not spent wisely.

The ACT government's light-rail project does not stand up to rigorous cost-benefit analysis.Credit:Jeffrey Chan

For one thing, investment has not put cities first, although they are the engines of national economic growth. Our largest cities are experiencing increasing congestion, yet government spending on new transport infrastructure has largely bypassed them. Just 43 per cent of new government investment in road and rail infrastructure has been spent in our four largest cities, even though these cities account for two-thirds of population growth and 60 per cent of national gross domestic product.

One difficulty is that there is little to stop politicians committing to projects before they are properly evaluated, particularly during election campaigns. Another problem is that good transport planning often falls by the wayside when negotiating the political deals required in forming minority government.

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The ACT government's controversial new light-rail project, priced at $698 million, is a case in point. A central plank of the Greens' pitch at the 2012 election, light rail became a key element of the parliamentary agreement that returned the Labor government with the support of Greens.

Light-rail users will no doubt value the new service – why wouldn't they? – but everything comes at a cost. And the real cost here is the better choice forgone. According to the ACT government's failed submission to Infrastructure Australia in 2012, the alternative option, bus rapid transit, would have delivered similar benefits to light rail, but at less than half the cost. Cost-benefit analysis showed that bus rapid transit would yield $1.98 of benefits for every dollar invested, whereas light rail would produce just $1.02.

In a business case published in late 2014, the benefit-cost estimate for Canberra light rail was bumped up to 1.2, but voters should still be sceptical. The project only breaks even because land-use benefits and wider economic impacts from light rail account for almost three-fifths of the projected benefits.

Yet, such benefits are highly speculative. "Wider economic impacts" are difficult to estimate separately from the direct impacts of new initiatives; adding them to the benefits included in conventional benefit-cost analysis risks counting them twice. A more conventional calculation that excludes these potential impacts, such as the one Infrastructure Australia requires for funding proposals, sees the benefit-cost ratio fall to less than 0.5. That is, every dollar spent would return less than 50 cents in benefit to the community.

Canberra light rail is just one example of an approach to investment in transport infrastructure that simply does not meet the needs of the community. Too often, taxpayers' money is spent on projects that are not especially important to the economy, but are popular with local voters.

We can do better. Governments should not be able to commit public money to a transport infrastructure project before tabling in Parliament a rigorous like-for-like evaluation of its benefits and costs conducted by a genuinely independent body. Governments could then make their decisions – and defend them – on the basis of a clear and public rationale for investment.

Once governments are only building projects where the community benefit clearly outweighs the cost, they should build all such projects. Quality assessment, not arbitrarily imposed budgetary limits, should determine the level of investment. In other words, if a project would deliver net benefits to the community, the government should build it.

More disciplined selection of transport infrastructure projects would mean less wasteful spending and better transport networks, built where and when they will make the most difference. Now that would be a project worth voting for.

Marion Terrill is transport program director at the Grattan Institute, an independent public policy think tank.